Morning Report: The OCC solicits input for CRA modernization

Vital Statistics:

	Last	Change
S&P futures	2897	-4.25
Eurostoxx index	379.06	-3.45
Oil (WTI)	71.13	1.33
10 year government bond yield		2.88%
30 year fixed rate mortgage		4.55%

Stocks are lower this morning on no real news. Bonds and MBS are down small. 

The highlight of the upcoming week will be the jobs report on Friday, although we will get a lot of Fed-speak on Wednesday. Productivity and costs on Thursday will be an important report as well. 

Construction spending rose 0.1% which was lower than the Street 0.4% expectation. Residential construction rose 0.6% MOM and 6.6% YOY. 

Manufacturing expanded in August, according to the ISM PMI Index. The August PMI increased 3.1% to 61.3, driven by increases in production and new orders. Employment rose as well. Many of the participants noted that trade is injecting some uncertainty into their business, especially with respect to price negotiations with suppliers. The reading of 61.3 is unusually strong, and is typically associated with 5.6% GDP growth. 

The OCC is asking for input regarding the CRA and modernization. “As a long-time banker, I have seen firsthand the benefit of CRA investment and how it makes communities vibrant. I applaud the effort of community development practitioners and bankers who work together to make an important difference in our nation’s neighborhoods,” said Comptroller of the Currency Joseph M. Otting. “I have also seen how limitations in the current CRA regulation can fail to provide consideration to a bank that wants to lend and invest in a community with a need for capital, including many low- and moderate-income areas. Unfortunately, the operation of the current CRA regulation can result in restricted resources. It is time for a national discussion on how we can make the CRA work better.”

The ANPR solicits comment on a number of questions regarding improvements to the CRA regulations related to

• increasing lending and services to people and in areas that need it most, including in LMI areas;
• clarifying and expanding the types of activities eligible for CRA consideration;
• revisiting how assessment areas are defined and used;
• establishing metric-based thresholds for CRA ratings;
• making bank CRA performance more transparent;
• improving the timeliness of regulatory decisions related to CRA; and
• reducing the cost and burden related to evaluating performance under the CRA.

Donald Trump was jawboning Canada over trade and threatening China with $200 million in higher tariffs. I think markets are pretty much shrugging off trade threats any more. Note that Trump will need legislation to carry out some of the changes he wants to make with Canada, which isn't going to happen. 

Home prices increased 0.3% MOM and 6.2% YOY in July, according to CoreLogic. They are forecast to rise about 5% over the upcoming year. We are seeing sellers in the hot markets decide to pull properties off the market to see if they can ride the home price appreciation for a bit longer. This is adding to the supply crunch. CoreLogic's model always seems to predict a slowdown in home price appreciation that never seems to materialize. 

An interesting tidbit - the median lot size fell to 8.560 square feet in 2017 (about 1/5 of an acre). Lot sizes had been trending downward, but climbed during the bubble years as more and more building was done in the exurbs. New England has the largest lot sizes at about 0.4 acres, while the left coast has the smallest (.15 acres). Note this study is only looking at single family spec homes. It looks like this is basically a secular trend, and the the bubble years (building in the exurbs) was largely a blip. It also could be a function of building activity being dominated in regions (like the West Coast), where lots are smaller.  

The ultra-high end luxury market has been getting whacked as foreign investors step away. Changes in tax laws might be having an impact, but it could have also been driven by overbuilding at the top end. I suspect it is the latter, since we are seeing softness in states like Florida which benefit from the tax law. 

Morning Report: Strong manufacturing numbers, still a coin-toss for 2 hikes this year

Vital Statistics:

			Last	Change
S&P futures			2737	10
Eurostoxx index			380.51	3.77
Oil (WTI)			75	1.06
10 Year Government Bond Yield				2.87%
30 Year fixed rate mortgage				4.52%

Stocks are up this morning as emerging markets rally overnight. Bonds and MBS are flat.\

Today should be quiet as markets close early ahead of the 4th of July holiday. 

Manufacturing continued to plow ahead in June, according to the ISM PMI Index. The responses from the survey participants show that the trade war is having some impact. One food and beverage company mentioned that they were shifting some production to Canada in order to escape Chinese retaliatory tariffs on US products. Inflationary pressures are present in higher commodity prices, and we are seeing secondary pressure from transportation (higher oil prices and driver shortages are pushing up prices here). Pretty much every commodity is seeing price increases, and there are material shortages in aluminum, steel, and electronic components. Overall, this is a strong manufacturing reading, which is usually associated with 5.2% GDP growth. Of course, manufacturing isn't the driver of the economy it used to be, but it is still a strong reading. 

The Fed is going to pay close attention to this report, particularly the part about labor shortages. From their standpoint, inflationary pressures from commodity price inflation are generally considered transitory and therefore temporary. An old saw in the commodity markets is that the cure for high prices is high prices. The potential dampening effect from trade battles will also concern them. IMO, until you start seeing wage inflation pick up in a meaningful way the Fed will consider this a push. Note we will get some insight into this on Thursday when the minutes from the June meeting are released. 

The Fed funds futures are still handicapping a 76% chance of a 25 bp hike in September and a 45% chance of one in December as well. 

Construction spending rose 0.4% in May, and is up 4.5% on an annualized basis. Residential construction was up 0.8% MOM and 6.6% YOY, as an increase in private resi construction was offset by a drop in public housing spending. Manufacturing construction took a step back, which will be something to watch (could just be noise, but could be trade-related). Meanwhile retail (specifically mall-related construction) is in the doldrums as vacancy rates soar.

Home price appreciation accelerated in May, according to the CoreLogic Home Price index. Prices rose 1.1% MOM and are up 7.1% YOY. The housing shortage is well-documented, and the problem is most acute at the entry-level. Higher rates and low inventory is also preventing some people from moving. CoreLogic estimates that 50% of the mortgage market has a rate of 3.75% or lower. According to CoreLogic's model which compares home price appreciation to income appreciation, we are seeing large pockets of overvaluation, particularly in Florida, the West Coast, the sand states, and parts of the Eastern Seaboard. The Midwest remains cheap.

Trump is reportedly mulling whether to pick a new Chief of Staff. One of the potential candidates is current CFPB Chairman Mick Mulvaney. Mulvaney is currently doing double duty as OMB and CFPB head, so a change for him would be unlikely, but the possibility is still there. Here are the implications of a change and who might replace him. 

Labor shortages continue to be an issue in the Midwest. Companies are now less squeamish about hiring ex-cons. In Elkhart, (where the labor market is so tight it sports a 2% unemployment rate and even the KFC is offering sign-on bonuses), companies are hiring convicted felons (except sex offenders) and are waiving drug tests. It is a back-to-the future scenario, where the labor market is suddenly transported back to 1955. 

Morning Report: ISM survey points to higher inflation going forward

Vital Statistics:

	Last	Change
S&P Futures	2708.3	-6.3
Eurostoxx Index	375.7	-4.0
Oil (WTI)	61.2	-0.5
US dollar index	84.3	0.1
10 Year Govt Bond Yield	2.84%
Current Coupon Fannie Mae TBA	102.313
Current Coupon Ginnie Mae TBA	102.531
30 Year Fixed Rate Mortgage	4.4

Stocks are lower this morning on no real news. Bonds and MBS are up.

Jerome Powell is set to testify in front of the Senate this morning. On Tuesday, he made some hawkish statements about inflation that sent bond yields higher. I doubt we will see a repeat today, but just be aware. 

Initial Jobless Claims fell to 210,000 last week, the lowest number since the 1960s. Last week included the President's Day holiday, which means we could have some sort of funky adjustment going on,  but regardless it speaks to a labor market where employers are hanging onto their employees. 

Personal Incomes rose 0.4% last month, while consumer spending rose 0.2%. The incomes number was a little better than expected. The inflation numbers show a modest pickup, but the core annual growth came in at 1.5% YOY, which is below the Fed's 2% target. 

Construction spending came in flat for January, and is up 3.2% YOY. Residential Construction was up 0.2% MOM and rose 4.3% YOY. 

The ISM Manufacturing Index improved to 60.8 in January. New Orders drove the improvement and employment improved markedly as well. The report often includes some snippets from respondents, and many of them are touching on the same thing:

• “Availability of electronic components, long lead times, allocations and constraints continue to wreak havoc in the purchasing cycle, with no end in sight at this time.” (Computer & Electronic Products
• “Steel market is doing rather well. Everybody is out of what I need.” (Fabricated Metal Products)
• “Employment is one of our biggest challenges. No labor available.” (Food, Beverage & Tobacco Products)
• “Business is very strong, and our lines are running at full capacity.” (Plastics & Rubber Products)

All of these statements relate to demand-driven bottlenecks and point towards inflation going forward. In fact, an ISM reading of this level would normally correspond with GDP growth over 5%. Note that the Fed pays close attention to the ISM numbers. 

CoreLogic has a good retrospective on the state of the housing markets in the US. 

Interesting development in the capital markets: Streaming music site Spotify is going public, without doing an IPO. Instead of selling a chunk of the company to an investment bank, who then sells it to the public, Spotify will skip the whole process and do a direct IPO, where it sells stock directly to the public on the NYSE. Without the certainty of a set number of shares, a set price for the shares and any sort of lock up period, SPOT could be a volatile stock out of the gate. 

The Senate looks poised to tackle banking reform, which essentially eases some of the Dodd-Frank restrictions on smaller banks. The asset threshold will be moved from $50 billion in assets to $250 billion in assets, which will prevent banks like M&T or Zions from having to conduct the detailed, 20,000 page stress tests that the bigger banks have to do. Aside from a few on the far left, there is general bipartisan support for easing the regulatory burden on smaller banks. 

Morning Report: Manufacturing strong

Vital Statistics:

	Last	Change
S&P Futures	2697.8	3.8
Eurostoxx Index	389.3	0.9
Oil (WTI)	60.8	0.4
US dollar index	85.7	-0.2
10 Year Govt Bond Yield	2.46%
Current Coupon Fannie Mae TBA	102.375
Current Coupon Ginnie Mae TBA	103.25
30 Year Fixed Rate Mortgage	3.91

Stocks are higher this morning on no real news. Bonds and MBS are up small. 

We will get the FOMC minutes this afternoon at 2:00 pm. We might see some volatility if they contain any surprises, so just be aware if you are locking around then. 

Mortgage applications fell 3% last week as purchases rose 1% and refis fell 7%. 

Manufacturing improved in December, according to the ISM Manufacturing Report. New Orders and Production drove the increase, while employment fell. This was the second highest reading for 2017. Manufacturing firms reported difficulties finding qualified workers, and 44% reported increasing starting pay to attract workers. The 2017 average of 57.6 in the index historically corresponds with a 4.5% increase in GDP. The December reading would be associated with over 5% growth. That said, manufacturing doesn't have the impact on the economy it used to have, but that is still impressive growth. 

Despite Twitter tensions with North Korea (which rattled the chattering classes), North Korea and South Korea improved communications. While the tiff between Kim Jong Un and Trump make for bit of a sideshow, the markets (stocks, bonds, currencies) do not take it as any sort of serious threat or possibility. 

Construction spending increased in November by 0.8% MOM and 2.4% YOY. Private residential construction rose 1.1% MOM and over 7% YOY. 

Framing lumber prices are up 43% YOY, in the CME futures. Traders are looking for prices to eclipse their bubble highs this Spring. This should bump up prices for new construction in 2018. For all of the handwringing over tax reform's effect on house prices, simple supply and demand will keep them supported, at least for 90% of the market. If the growth in the economy ever translates into faster wage growth, expect that supply and demand imbalance to increase even further. 

Economic confidence was positive in 2017, according to Gallup's economic confidence index. Note the index began in 2008, so the only track record we have is of the crisis / post-crisis days. 

Congress is working to come up with some sort of long-term spending solution to keep the lights on. Republicans want increased defense spending, while Democrats want non-defense spending to have the same increases that defense does. Surprisingly, both parties seem to want to increase defense spending. Republicans are going to need Democrats to reach a deal, as some on the right will balk at the higher spending levels. While there has been talk that Democrats might demand some sort of immigration measure in exchange for a vote, so far they haven't drawn that line in the sand. At least as of now, nobody is talking about a government shutdown. Remember the last time government shut down, originators couldn't get tax transcripts out of the IRS which delayed some closings. It is something to stay ahead of. 

Morning Report: ADP payrolls come in light

Vital Statistics:

	Last	Change
S&P Futures	2583.0	10.0
Eurostoxx Index	397.8	2.5
Oil (WTI)	55.0	0.6
US dollar index	87.8	0.1
10 Year Govt Bond Yield	2.39%
Current Coupon Fannie Mae TBA	102.68
Current Coupon Ginnie Mae TBA	103.75
30 Year Fixed Rate Mortgage	3.99

Green on the screen this morning as markets rally worldwide. Bonds and MBS are down. 

The Fed decision is due at 2:00 pm EST today. No changes in interest rates are expected, but there is always the risk that something in the statement could move rates. Be careful locking around then. Separately, Donald Trump is scheduled to announce Yellen's replacement tomorrow. 

Mortgage applications continue to fall (six times in the last seven weeks), according to the MBA. Applications decreased by 2.6% as purchases fell 1% and refis fell 5%. Mortgage rates hit a low for 2017 in September, but have risen about 20 basis points since then. The average contract interest rate was 4.22%, an increase of 4 basis points from last week. 

ADP saw an uptick in payrolls for October, increasing to 235k. September was revised downward to 110k due to the hurricanes. Many were expecting to see a bigger rebound for October, but it hasn't happened, at least according to ADP. The BLS is announcing payrolls on Friday, with the Street looking for 325k. 

Construction spending rose 0.3% in September, according to the Census Bureau. On a YOY basis, it is up 2%. Residential construction was flat on a month-over-month basis but is up 9.6% YOY. 

Manufacturing is still strong, according to the ISM index. It slipped slightly in October to 58.7 from 59.5. Hurricane effects are probably having some effect here. 

House Republicans moved back their tax reform reveal by a day, which shows there is some disagreement in whether this can pass. With uniform opposition from Democrats, it will only take a few Republicans to kill it. The state and local tax deduction will probably prove to be the deal killer, and while many Republicans have big philosophical objections to the estate tax, it probably isn't a hill worth dying on. While people have historically considered senior citizens to be the third rail of politics, in all reality, it is the upper middle class (especially the HENRY's, which stands for high earnings, not rich yet). They are the ones most affected by changes in 401k contributions, state and local tax deductions, and the mortgage interest deduction. The top 20% pays 95% of the income taxes in this country, according to OMB. 

Morning Report: Mediocre Jobs report

Vital Statistics:

	Last	Change
S&P Futures	2475.8	5.8
Eurostoxx Index	375.9	2.0
Oil (WTI)	47.0	-0.3
US dollar index	85.3	-0.4
10 Year Govt Bond Yield	2.11%
Current Coupon Fannie Mae TBA	103.33
Current Coupon Ginnie Mae TBA	104.21
30 Year Fixed Rate Mortgage	3.86

Stocks are higher despite a mediocre jobs report. Bonds and MBS are up. 

Jobs report data dump:

• Payrolls up 156,000
• Unemployment rate 4.4%
• Hourly earnings up 0.1% MOM / 2.5% YOY
• Labor force participation rate 62.9%
• 2 month payroll revision down 41,000

Another month where the ADP number was way off of what BLS reported. For the markets, it is a Goldilocks report which is strong enough to keep the recovery going and weak enough to keep the Fed from tightening too aggressively. Construction, professional business services, and manufacturing were the biggest contributors to job growth. Manufacturing job growth was the highest in 5 years, which is encouraging.  2.5% annual wage growth is nothing to write home about, however with inflation around 1.5% or so, it is probably the best we can hope for at the moment. The Fed funds futures moved a touch more towards the Fed standing pat in December and September. 

The strong manufacturing job growth was echoed in the latest ISM Manufacturing Survey, which improved in July. New Orders and Production drove the big increase, although employment was close behind. The reading of 58.8 is usually associated with 4.9% GDP growth. Given that strength, wage growth should be accelerating. 

Construction spending fell in July by 0.6% and is up only 1.8% YOY. Residential construction improved however, which we need to see to alleviate the tight inventory issue. 

Gasoline prices are up 25% in some places after Harvey affected about 10% of the US's refining capacity. Higher gas prices have invariably tilted towards lower growth and a drop in the consumer confidence indices. Expect to see some hand-wringing over the mindset of the consumer going forward. 

Bond strategists are flummoxed to explain the bond market's rally over the past few months. At the beginning of the year, most were thinking the 10 year would yield closer to 3%, however yields have dropped by about 40 basis points instead. With GDP growth around 3%, you should expect to see investors dump Treasuries, but it hasn't happened. IMO the Trump reflation trade was always a bit of a stretch, and pre-election yields were closer to reality than post-election yields. Still, there are a lot of bears that are having a tough year right now. 

Almost half of all homes in the US have regained their bubble peaks, according to Zillow. The leading MSAs are Denver and Dallas, while the ones who still lag the most include Las Vegas and Riverside. 

Morning Report: Risk on feeling after speech

Vital Statistics:

	Last	Change
S&P Futures	2379.5	16.8
Eurostoxx Index	374.6	4.4
Oil (WTI)	54.1	0.1
US dollar index	91.7
10 Year Govt Bond Yield	2.46%
Current Coupon Fannie Mae TBA	101.91
Current Coupon Ginnie Mae TBA	103.41
30 Year Fixed Rate Mortgage	4.09

We have green on the screen this morning as markets liked Donald Trump's speech to Congress last night. Bonds and MBS are down.

Donald Trump addressed Congress last night (it wasn't a full-on State of the Union address), and laid out broad brush strokes about his priorities going forward, including tax reform and healthcare. Generally speaking, the speech was well-received, although those looking for policy depth were disappointed. Here is a transcript. Regardless, equity markets liked what they heard and we are off to the races this morning. 

On the bond side of things, yields continue to increase, particularly on shorter-term paper as markets handicap a March hike. The 2 year bond now yields 1.31%, which is a post-crisis record. 

Mortgage Applications rose 5.8% last week as purchases rose 7% and refis rose 5%. Refis accounted for just over 45% of all applications last week, the lowest since 2008. 

Personal incomes rose 0.4% in January, a little better than expected, while personal spending rose 0.2%, which was a little lower than expected. The Personal Consumption Expenditure index, which the Fed prefers to use, rose 1.9% YOY. The core PCE index which excludes food and energy rose 1.7% YOY. Note that the PCE index is generally about 30 basis points behind the Consumer Price Index, simply because of the difference in weightings. Note that the second revision of GDP from yesterday had PCE inflation at 2.2% at the end of December, so we are seeing a deceleration in January.

Manufacturing improved in February, according to the ISM Manufacturing Survey. New Orders rose, while employment fell. The reading for February of 57.7 would typically correspond to a GDP growth rate of 4.5%. While manufacturing isn't the driver of the economy that it used to be, this is still good news for growth going forward, especially after a pretty weak 2016. 

Construction spending fell 1% in January and is up 3.1% on a YOY basis. Residential construction rose 0.3% and is up 5.5% YOY. Donald Trump plans to add $1 trillion in construction spending, although he does not say over what period. As we learned from the Obama stimulus of 2009, infrastructure spending has a long lead time. That said, take a look at the chart below, which is of public construction spending. We have averaged about $300 billion a year in public construction spending over the past 10 years or so, which means an additional trillion over something like 4 years amounts to almost doubling public construction spending. This would mean public construction spending as a percent of GDP would be at a 50 year high. 

Delinquency rates continue to fall according to Freddie Mac. The seriously delinquent rate fell below 1% in January, which is down from 1.33% a year ago. The rate peaked in 2010 at 4.2%. Pre-bubble, seriously delinquent rates were in the 60-80 basis point range. 

Morning Report: Blowout ADP number

Vital Statistics:

	Last	Change
S&P Futures	2281.5	7.0
Eurostoxx Index	364.3	4.0
Oil (WTI)	53.3	0.5
US dollar index	90.7	0.2
10 Year Govt Bond Yield	2.49%
Current Coupon Fannie Mae TBA	102.1
Current Coupon Ginnie Mae TBA	103.2
30 Year Fixed Rate Mortgage	4.16

Stocks are higher this morning after a good ADP number. Bonds and MBS are down.

The private sector added 246,000 jobs in January, according to the ADP Employment Survey. This is the highest number since June 2016. We saw strong growth in construction jobs and manufacturing, while finance was flat and IT fell. The Street is looking for a 175k nonfarm payrolls in Friday's report. The ADP number hasn't been a great predictor of the BLS number for a while, so don't read too much into it. While strong, this number will probably not change anything with respect to this afternoon's Fed decision, which comes out at 2:00 pm EST. 

Mortgage Applications fell 3.2% last week as purchases fell 6% and refis fell 1%, according to the MBA. The average rate for a 30 year fixed rate mortgage rose 4 basis points. Refis fell below 50% for the first time since 2015. 

More evidence that the manufacturing sector is turning around: The ISM Manufacturing index hit a 2 year high in December. Input costs rose to a 5.5 year high, which is spooking the bond market a little this morning. 

Construction spending fell 0.2% in December, missing expectations. It is up 4.2% YOY. Residential construction rose 0.4% and is up 3,6% YOY. 

Donald Trump nominated Colorado federal appeals court judge Neil Gorsuch to the Supreme Court yesterday to replace Anonin Scalia who died last year. Democrats are vowing to filibuster in retaliation for the treatment of Obama's nominee Merrick Garland. 

Distressed sales fell in October, according to CoreLogic and are now at the lowest levels since 2007. Cash sales came in at 32%, which is still elevated compared to pre-crisis levels. Normalcy is around 25% or so. 

The REO-to-Rental trade worked out for Blackstone, culminating in the IPO of Invitation Homes, which raised $1.54 billion in an IPO yesterday. The deal was priced at $20 a share, within the $18-$21 range. The stock begins trading today under the symbol INVH.

Should homebuyers wait until spring to purchase a home? It turns out the best months to purchase are January and February. Less competition means bigger discounts to the asking price. 

Morning Report: Don't fear another real estate bubble

Vital Statistics:

	Last	Change	Percent
S&P Futures	2088.0	-6.9	-0.33%
Eurostoxx Index	3031.4	-32.1	-1.05%
Oil (WTI)	48.5	-0.6	-1.22%
LIBOR	0.673	-0.001	-0.15%
US Dollar Index (DXY)	95.38	-0.510	-0.53%
10 Year Govt Bond Yield	1.81%	-0.03%
Current Coupon Ginnie Mae TBA	105.6
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.65

Markets are lower this morning on overseas weakness. Bonds and MBS are up.

Mortgage Applications fell 4.1% last week as purchases fell 4.7% and refis fell 3.9%. Refis ticked up to 54.3% of the total number of loans. 

The ISM Manufacturing report came in better than expected, indicating that the manufacturing economy is expanding, albeit modestly. The ISM services number is much more important, as manufacturing only represents 15% of the economy. It looks like the exporters are getting hit harder than those who mainly focus domestically. Employment was flat month-over-month, however it is in a contracting trend. 

Construction spending fell 1.8% month-over month, however the previous 0.3% print was revised upward to 1.5%. Residential construction fell 1.5% month-over-month, however it is up 8% YOY. 

As we saw from the FHFA House Price index, home prices have recouped their losses from the bubble years. Is it time to start worrying about a new housing bubble? Freddie Mac takes a look at real estate prices relative to incomes, credit scores, inventory, and leverage in the system and concludes that it is not yet time to worry. While house prices are indeed stretched relative to incomes, that figure ignores the effect of interest rates. The overall credit profile for new originations has been strong since the crisis, and while we are beginning to see some credit deterioration in the oil states, it is nothing like 2007-2008. Tight inventory remains a huge issue in terms of pricing, and notwithstanding last week's 617k print on new home sales, new construction is still well below historical levels. Consumers are increasing mortgage debt, however they seem to be using the cash-out refi to pay down credit card debt instead off funding consumption. The froth in the housing market still remains concentrated in the big coastal urban areas like San Francisco and Manhattan, which is driven by foreign demand. 

At the end of the day, bubbles are psychological phenomenons, where investors and lenders both believe an asset is "special" and cannot go down in price. We will probably never see another real estate bubble, but our grandkids might. If anything, the bubble is in sovereign debt, and people will wonder why investors chose to tie up their money for 10 years for negative returns. Purchasing a German Bund yielding 13 basis points over 10 years is in the same category as buying a new construction McMansion in Stockton CA circa 2006 or paying $76 a share for E Toys the day of its $20 IPO in 1999. 

Auto sales are coming in this morning, and it looks like they are coming in weaker than expected. 

Interesting editorial by Clintonite Doug Schoen who says Hillary might not be the Democratic Party nominee. There is talk in the Democratic party about a white knight candidate, like Joe Biden or John Kerry who could enter the race at the convention, and select someone like Elizabeth Warren to be VP. 

Morning Report: Decent jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	2037.6	-13.9	-0.68%
Eurostoxx Index	2920.0	-85.0	-2.83%
Oil (WTI)	37.05	-1.3	-3.36%
LIBOR	0.625	-0.006	-0.91%
US Dollar Index (DXY)	94.63	0.048	0.05%
10 Year Govt Bond Yield	1.76%	-0.01%
Current Coupon Ginnie Mae TBA	105.6
Current Coupon Fannie Mae TBA	104.9
BankRate 30 Year Fixed Rate Mortgage	3.65

Stocks are lower after the jobs report. Bonds and MBS are flat.

Jobs report data dump:

• Payrolls up 215k vs 205k expected
• Unemployment rate 5% up .1%
• Labor Force Participation rate 63%
• Average hourly earnings up 2.3% YOY
• Average hourly earnings flat at 34.4

Manufacturing employment fell 29k, while restaurant increased 25k, retail, up 48k and construction up 37k. This is the fifth straight increase in the labor force participation rate, which bottomed out (hopefully) in September. The lower the labor force participation rate, the lower the speed limit for the economy. The improvement in the participation rate drove an increase in the unemployment rate, and this is one of those times where an increase in the unemployment rate is actually a good thing because it means that discouraged workers are now beginning to see enough opportunity out there to look for a job. Remember, if you are unemployed and not actively looking for a job, you are not considered to be part of the labor force, and therefore you aren't officially "unemployed" according to the government. Wages rebounded from a negative February. Overall, a decent report - the wage growth will certainly push the Fed to take another step towards normalization of interest rates, and a June hike is looking more certain.

Despite the drop in manufacturing employment, the ISM Manufacturing Index increased smartly in March, New Orders and production drove the increase, while employment fell. Prices rose as commodity and raw material prices increased. This level of manufacturing would be consistent with 2% GDP growth. A shortage of skilled labor continues to be a problem. 

Construction spending fell 0.5% in February, while January was revised upward to an increase of 2.1%. Residential construction rose 0.9% and is up 10.5% YOY. We are almost back to the pre-bubble highs. 

Consumer Sentiment ticked up in March, according to the University of Michigan to 91. 

Morning Report: Big week ahead.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1918.6	-11.5	-0.60%
Eurostoxx Index	2998.5	-46.6	-1.53%
Oil (WTI)	32.32	-1.3	-3.87%
LIBOR	0.613	-0.003	-0.49%
US Dollar Index (DXY)	99.26	-0.343	-0.34%
10 Year Govt Bond Yield	1.94%	0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.76

Stocks are being weighed down by commodity weakness. Bonds and MBS are down small.

We have a big week of economic data, with the ISM numbers, construction spending, and the jobs report on Friday. Friday's jobs report will be the highlight of the week. 

Personal Income rose 0.3% in December, which was a little better than expected, although that money wasn't spent. Personal Spending was flat in December, which means the Great American Deleveraging continues to take place.

Inflation remains nowhere to be found, with the PCE Deflator negative in December on a month-over-month basis and up 0.6% YOY. The core PCE was flat in December and up 1.4% YOY. 

The ISM Manufacturing Index fell to 52.4 from 52.7 last month, while the ISM Manufacturing Index rose slightly to 48.2 from 48. 

Construction Spending rose 0.1% in December after falling 0.6% in November. 

Here are Realtor.com's list of the 20 hottest real estate markets right now. Very California-centric, however some surprises in Stockton, Detroit MI, and Fort Wayne, IN. 

Morning Report: Tough start to 2016

Vital Statistics:

	Last	Change	Percent
S&P Futures	1998.8	-36.6	-1.80%
Eurostoxx Index	3173.7	-93.8	-2.87%
Oil (WTI)	37.61	0.6	1.54%
LIBOR	0.613	0.001	0.08%
US Dollar Index (DXY)	98.67	-0.012	-0.01%
10 Year Govt Bond Yield	2.22%	-0.05%
Current Coupon Ginnie Mae TBA	104.2
Current Coupon Fannie Mae TBA	103.4
BankRate 30 Year Fixed Rate Mortgage	3.9

Markets are getting rocked to start the new year, with China limit down overnight and Euro markets down anywhere from 2% to 4%. Bonds and MBS are up.

The ISM Manufacturing Index fell to 48.2 from 48.6 in December, which is the second month of contraction in the manufacturing sector. Blame the dollar. A 48.2 reading in the manufacturing PMI would normally be associated with GDP growth of around 1.6%.

Construction Spending fell 0.4% in November and October's number was revised downward from 1.0% to 0.3%. 

Foreign demand for US real estate will continue to grow in 2016. Foreign purchases of US real estate were $87 billion last year compared to $9 billion in 2009. Berlin, London, New York City, and San Francisco are the markets where global hot money are headed.

Tensions are increasing in the Middle East, with Saudi Arabia cutting diplomatic ties with Iran over the execution of a cleric. Saudi Arabia is struggling since its economy is based on redistributing oil money and there hasn't been a lot of oil money to redistribute lately. They may have miscalculated on trying to drive out fracking - it can be turned on and off with very little expense and time. 

Morning Report: Construction spending rises, manufacturing contracting

Vital Statistics:

	Last	Change	Percent
S&P Futures	2086.6	6.8	0.33%
Eurostoxx Index	3503.9	-2.5	-0.07%
Oil (WTI)	41.29	-0.4	-0.86%
LIBOR	0.414	0.003	0.61%
US Dollar Index (DXY)	99.96	-0.213	-0.21%
10 Year Govt Bond Yield	2.22%	0.01%
Current Coupon Ginnie Mae TBA	104.4
Current Coupon Fannie Mae TBA	103.6
BankRate 30 Year Fixed Rate Mortgage	3.82

Stocks are higher this morning on economic strength out of Asia. Bonds and MBS are down.

Construction spending rose 1.0% in October. This is up 13% year over year. Residential construction rose 16.8% year over year, however the growth appears to be in multi-family construction, not SFR. 

The ISM Manufacturing Index fell to 48.6 from 50.1 last month. A reading below 50 indicates that the manufacturing economy is generally contracting. This is the biggest decline since June of 2009. Inventory build is a problem, which has also been confirmed in the inventory to sales ratio. In fact, third quarter GDP was revised upward based on inventory build, however that inventory build essentially "borrows" growth from the following quarter. A reading of 48.6 would generally correspond to a GDP growth rate of about 1.7%. 

Chart: ISM Manufacturing:

The weakness in manufacturing is a dollar issue, as commodity based companies and exporters are feeling the pinch. Since the US is the only economy contemplating tightening (while everyone else is deciding how much additional stimulus to put out), the dollar strength looks to continue. 

Chart: US dollar index:

Vehicle sales are coming in this morning, and it looks like GM, Fiat-Chrysler, and Ford have missed their market forecasts. Most were reporting growth of about 3%. Auto loans are the new subprime. 

Loews CEO and famed investor James Tisch said the Fed is "woefully behind the curve in waiting to raise rates. It should have been done years ago." He is one of the people that is making the argument that raising rates could be positive for the economy as it will eliminate some of the misallocated capital (especially in the energy patch) and remove the penalty on savers. 

Silicon Valley is attempting to disrupt the mortgage industry with a new model of non-QM, stated income loans where human interaction with the borrower is kept to a minimum. The Millennial generation generally prefers to interact with technology instead of a human. These firms are making huge investments in technology (in fact at one firm 7 or the 12 employees are IT people). They are also taking regulatory risks that many in the industry are unwilling to take. One CEO said: "There isn’t a banker out there that doesn’t look at me and shake his head and say, ‘You don’t know what you’re doing...But we’re doing it.”  They are also making a bet that the private label market will return at some point early next year. Interestingly, LOs are compensated on "customer satisfaction" and not commission. 

Speaking of disruption, Morgan Stanley is laying off about a quarter of its fixed income trading team. Last year was a lousy year for fixed income trading in general, and the fee income just hasn't been there. While the Fed has basically spoon fed rate expectations to the market, the exit of market makers will probably make the markets more volatile. Don't forget, traders are generally young, and the majority of the ones who are left have never seen a tightening cycle before. 

While Black Friday looks to have been a disappointment, initial indications suggest Cyber Monday went a little better.